If you are like most people, having annuities explained makes them easier to understand especially if you are not a finance oriented person. Hence, the simple explanation of annuities is that they are term deposits with insurance companies.

An annuity can be compared to bank certificates of deposits (CD) but unlike a CD an annuity is not insured by the FDIC. However, the issuing insurance company guarantees its annuities.

The industry started with two types of annuities, fixed annuities and variable annuities, then added an index annuity. The nice thing about all three types, as far as annuities explained, is they have a lot in common so it makes them easier to understand.

Fixed annuities are exactly that. A look at their features will illuminate their mechanics. As stated above, your principal is guaranteed by the insurance company. The guarantee states your annuity will never decline.

You make money each year because the insurance company adds interest to your deposit. The deposit compounds on an annual tax deferred basis.

The fixed annuity carries a specific term. You decide the term you want. It is fair to say the longer term you select, the higher the interest rate you will receive.

The interest paid on your contract is tax deferred. This means you do not have to report it on your yearly tax return. However, when you begin to withdraw from the contract, you probably will incur a tax obligation.

Almost all annuities allow you to withdraw 10% of your balance annually without charges. But, if you withdraw more than 10%, you will be faced with surrender charges commonly known as withdrawal penalties.

Like a CD, fixed annuities offer an initial one-year rate. After this initial period, the rate changes. On the other hand, some companies offer a multi-year guaranteed rate. This means the quoted rate is the locked-in rate for the entire guaranteed period.

A variable annuity revolves around mutual funds because your premium is invested in mutual funds.

Therefore, you are not receiving interest from the insurance company or financial institution selling it. Variable annuities do not have guarantees. Hence, your investment may go up or you could lose principal. Obviously, this depends on the mutual funds you select.

Index annuities could be called a hybrid annuity. Like a fixed annuity, your principal is guaranteed. However, the interest paid is split into two components. One is a declared side of the contract with the other side of the contract tied to an index. The S&P 500 Index is the most common index used by insurance companies.

Some index annuities do not have a declared rate side of the contract so all of the premium is tied to the index. This means your principal is guaranteed but your interest isn’t. If the index rate rises, you could get a substantial interest payment. However, if the index goes down, you won’t lose any principal but you won’t get any interest either.

Always use Nevada Annuities to get annuities explained properly and completely.

Go Home:

Nevada Annuities

Bookmark It

Hide Sites

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

]]>